IRS Raising Annual Gift Tax and Estate Tax Exclusions in 2023

Although inflation is generally nothing to be pleased about, the IRS recently announced inflation-adjusted changes to the gift tax annual and estate tax exclusions for 2023.

If you are considering wealth transfer tax planning, these are welcome increases.

Gift Tax Annual Exclusion

Effective January 1, 2023, the gift tax annual exclusion will increase from $16,000 (2022 number) to $17,000 per recipient. This means you can gift this amount to as many people as you wish in 2023 without using up your lifetime gift and estate tax exemption or paying gift tax. Married couples who gift-split may gift a combined $34,000 per person in 2023 without making a taxable gift.

Combined Gift and Estate Tax Exemption

Another significant change, effective January 1, 2023, is the combined gift and estate tax exclusion increase. It is currently $12.06 million, increasing to $12.92 million ($25.84 million for a married couple). The combined gift and estate tax exemption is the total amount of gifts a person may make during their lifetime, including transfers made at death, before being on the hook for gift or estate tax.

Those who have used up their lifetime exclusions as of December 31, 2022, will now be able to gift another $860,000 tax-free starting January 1, 2023. Married couples in this situation may make additional gifts of $1.72 million.

Generation-Skipping Transfer Tax Exemption

Another significant inflation-related change to be aware of: the generation-skipping transfer tax exemption is also going up. It will be $12.92 million, up from $10 million.

This may be useful for an individual who wishes to place assets in a trust for the benefit of future generations. In doing so, they may allocate their generation-skipping transfer tax exemption to this trust. The result is that these assets can remain in the trust for multiple generations without any gift, estate, or generation-skipping tax due on distributions or upon the trust’s termination.

Looking Ahead

However, readers should remember that these figures will revert to much lower amounts when the current Tax Cuts and Job Act expires on December 31, 2025, if Congress does not extend it or make it permanent. These exclusions will be reduced by approximately 50 percent to 2017 levels upon expiration, as adjusted for inflation.

There are a variety of planning strategies available to take advantage of these more significant exemption amounts before they are no longer available. If you have questions about how you can benefit from the increased tax exclusions, contact us for an estate planning consultation at (989) 356-6128. Even if you have an estate which is valued at far less than the present or projected level of estate tax exemption, it is still a good time to think about scheduling an estate planning consultation. Many people make it their New Year’s Resolution to get their  documents and affairs in order. You can take care of the first step now by calling and getting an appointment on the calendar for 2023!

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

Read more articles:

10 Ways to Maximize Your Social Security Retirement Benefits

Social Security wasn’t meant to be a primary source of income for retirees when it was first created in 1935. It sought to provide an umbrella of protection for people who couldn’t save enough for retirement. Most Americans didn’t think much about Social Security,...

Activities of Daily Living and the Need for Long-Term Care

Most long-term care involves assisting with basic personal needs rather than providing medical care. The long-term care community measures personal needs by looking at whether an individual requires help with basic activities.   ADLs Meaning ADLs, or activities...

Majority of Adult Children Cannot Support Boomer Parents, Surveys Find

A recent survey by the American Advisors Group (AAG) finds that 55 percent of adult children say they are not financially prepared to help their Baby Boomer parents cope with rising inflation and living expenses. “Americans want to see their parents age with grace and...

6 Ways the Sandwich Generation Can Plan for The Future

Anyone experiencing the struggle of simultaneously caring for children and aging parents is part of the sandwich generation. Although “generation” is part of the phrase, it doesn’t refer to people born at a specific time. Typically, these family caregivers will be in...

How Much Should a Trustee Be Compensated?

Serving as a trustee of a trust can be a huge responsibility, so trustees are entitled to compensation for their work. The amount of compensation depends on the type of trustee and the complexity of the trust.  Depending on the trust, a trustee’s duties can include...

Estate Planning for Surviving Spouses

After losing a spouse or longtime partner, it’s difficult to look past your grief. However, it’s crucial to understand the important and timely decisions you must make regarding your finances and personal estate plan. Estate planning is an ongoing process, as it...

Why Hire an Elder Law Attorney?

Elder law attorneys may specialize in estate planning, incapacity planning, and end-of-life care for seniors. They also help older adults remain in their homes as they age and protect them from abuse.      These practitioners are essential because they work to protect...

Court Case Illustrates the Danger of Using an Online Power of Attorney Form

A recent court case involving a power of attorney demonstrates the problem with using online estate planning forms instead of hiring an attorney who can make sure your documents are tailored to your needs. Mercedes Goosley owned a home in Pennsylvania. In 2013, she...

CMS: Medicare Will Soon Cover Certain Alzheimer’s Treatments

Medicare recipients living with a diagnosis of Alzheimer’s recently received promising news: The Centers for Medicare & Medicaid Services (CMS) has announced that it would begin covering new Alzheimer’s treatments that receive approval from the FDA. “If the FDA...

Using a QTIP Trust in Estate Planning

Estate planning is crucial when managing valuable assets and ensuring the smooth transfer of wealth to future generations. There are various types of estate planning tools available, some of which may be more useful depending on your circumstances. For some, a...